Don’t Forget About The SEC

With all the attention on the standards coming out of the FASB and IASB, it might be easy to forget about the SEC, but the SEC is also busy with a number of projects and I wanted to use this blog to mention a few that will impact most public companies in the coming year.

New Chairman – Mary Jo White was confirmed as the new Chairman of the SEC. Ms. White is a prosecutor but stated during the nomination process that her top priority is to complete all of the rulemaking required by the Dodd-Frank Act and the JOBS Act. Additional priorities include strengthening the SEC’s enforcement program and focusing on the technology used by the SEC.

Conflict Mineral Reporting – Despite the U.S. Chamber of Commerce and National Association of Manufacturers lawsuit, the requirements to file the first report on May 31, 2014 (actually June 2 since May 31 falls on a Saturday) for the 2013 calendar year are still in place. The question many professional accountants are asking themselves about these rules is what role should they be playing? The final rule made the report a separate filing distinct from the 10-K and only required that it be signed by an “executive officer” of the company, not the CFO or CEO. As such this has truly become a procurement and/or legal led project and some Finance departments are quietly moving to the background of this reporting effort. The one point that Finance needs to be involved in the short term is the selection of the auditor for the report. While many companies will naturally lean toward their financial statement auditor to provide this service, since it is no longer part of the 10-K that is no longer as obvious a decision and, in fact, it does not even have to be a traditional CPA audit firm under the rules.

Political Spending – The SEC issued a notification of proposed rulemaking covering the disclosure of political spending by public companies. This means the SEC is considering a rule in this area, but has not yet issued anything more specific. The SEC has a lot on its plate, but many see this as the administration’s response to the Supreme Court’s ruling allowing unlimited political donations by corporations. This also covers a topic that is a perennial favorite shareholder submission for a proxy vote. While the shareholders almost always vote down the proposals, you can bet there will be plenty of support from a vocal group (I won’t opine as to whether it is a minority or majority) if a rule is proposed.

Social Media – After the minor uproar over the Netflix CEO’s disclosure of important company information on his personal Facebook account, the SEC has released guidance on how a company can use Social Media to communicate material information. Basically, the company has to tell investors – ahead of time – all potential sources of public disclosures. Look for a lot of CEOs to gain a lot more Facebook friends and Twitter followers in the coming months. I wonder how long it will be before someone starts selling advertising space linked to these pages to stock brokers.

Executive Compensation – two of those Dodd-Frank outstanding rules cover new requirements around executive compensation. The first will be a rule requiring clawback provisions in executive compensation programs if the financial statements are later found to be materially misstated. You need to be careful when implementing these requirements. If improperly implemented, clawback provisions can impact the accounting for share-based compensation and get some very unwanted results. The second rule will be on required disclosures comparing CEO pay the other employees in the company. That will obviously be a very sensitive disclosure and the calculations a likely to be under a lot of scrutiny, both internally and externally, whenever the rule is proposed and finalized.

MD&A versus Financial Statement Disclosures – Finally, the SEC Chief Accountant, Paul Beswick announced a planned effort to be launched with a roundtable sometime this summer to review disclosure gaps and overlaps and look at what type of information should appear in the financial statements versus the rest of the annual reporting package including the MD&A. While it won’t result in rulemaking right away, this might provide a lot of interesting fodder for discussion about the future of financial reporting.